OTC2CCP eliminates $375tln in notional principal, Germany may have to back-paddle with HFT

Portfolio compression is just one positive consequence from the OTC2 CCP regulation that allowed OTC derivative market participants to eliminate more than $375tln in notional principal through 2013, said Markus-Alexander Flesch who represented Eurex in the latest Opalesque 2014 Malta Roundtable.

"From the perspective of an exchange, allow me to add some additional observations regarding regulations. On the one side, we all know that regulation could be very positive since it enforces more transparency, but on the other side, regulation can also provoke exactly the inverse," Flesch said.

Regulations can have two sides

He cited two regulations with opposite implications. "One of the biggest lessons learned as a consequence from the 2008 crisis is to increase transparency and to reduce the complexity stemming from complicated OTC structures. Therefore the born project 'OTC2CCP’ has already a very positive impact on the market and all its participants, just for the fact that bringing OTC structures into a CCP will increase transparency and reduce capital requirements," Flesch said.

Another positive consequence is portfolio compression. He described portfolio compression as recognized as best practice by the industry and it has been incorporated into the new re......................